In this article we will discuss about the law of supply of goods.
Supply is the quantity of a good or service which is offered for sale at a given moment and at a given price.
Supply does not necessarily comprise the entire stock of any commodity in existence, but only the amount put on to the market at a given price and at a particular moment in time.
Supply schedule and supply curve:
What motivates suppliers in a price economy is product. Generally, therefore, we would expect more of a good or service to be supplied at a high price, and less of a good or service supplied at a low price.
It is possible to construct a supply schedule for a given good.
We can see that as price increases the supply of the good increases. This information can be illustrated graphically in the form of a supply curve. See Fig. 1.
It is very important to note that the supply curve falls from right to left and it indicates that at high prices there is high supply and at low prices there is low supply.
According to the Law of Supply, the quantity supplied of a commodity increases when its price rises and vice versa. However, there are certain exceptions to the Law of Supply.
The following three exceptions are worth mentioning in this context:
1. Vertical supply curve:
The supply or rare goods (such as the artwork of a dead painter) or even the supply curve of land is completely inelastic — a vertical straight line.
2. Backward bending supply curve:
The supply curve of labour is backward bending due to leisure preference. If the wage rate rises the supply of labour may fall and the supply curve of labour may bend back to the left.
3. Downward sloping supply curve:
The long-run industry supply curve under perfect competition may be downward sloping if production takes place under conditions of increasing return or decreasing cost. If, due to industry expansion, the market price of one of the basic inputs falls, the cost of production of each firm will fall. This will enable all firms to supply a larger quantity at a lower price and the industry supply curve will be downward sloping. There were types of supply curve as shown in Fig. 2.